Incremental LNG demand during the next five years will have been met by new capacities already under construction and up to two-thirds of the capacities waiting to be sanctioned, according to a Wells Fargo report. The market is exposed to the risk of supply developing too fast and far ahead of demand.

Wells Fargo warned of disruption in liquefaction capacity and LNG shipping rates because projects under construction have already either met a large amount or all of the incremental projected demand.

A SUPPLY glut may develop from 2025 onwards with a huge wealth of new liquefaction capacities of natural gas waiting to be sanctioned, which is set to outstrip incremental demand.

With about 90m tonnes per annum of liquefaction capacities already under construction, a Wells Fargo report this week estimated that incremental demand during the next five years would be met by just another 35m to 60m tpa of new capacity that is seeking final investment decisions.

The bank’s senior analyst Michael Webber noted that the projection was based on an annual growth rate of 4.9% in global LNG demand equating to an incremental demand of 100m-120m tpa through to 2025.

In April, energy and commodity research agency, Wood Mackenzie, separately estimated that more than 90m tpa of new liquefaction capacities worth $200bn are seeking final investment decisions this year or in 2020.

The new capacities being brought into production in the next five years may well flood the market with excess LNG supply.

Wells Fargo predicted that the additional LNG demand up to 2025 could well be met by capacities currently being built along with five of the most prospective projects — Qatar’s North Field Expansion, Novatek’s Arctic LNG 2, Mozambique Area 1 and Rovuma LNG as well as Perenco’s Train 3 in Cameroon.

Backed by the potential demand from vast new capacities entering the market, shipowners’ appetite for newbuilding LNG carriers has also spiked in the past 18 months.

So far this year orders for 27 vessels of such type have been announced following a haul of 77 units placed with yards a year ago.

By Wells Fargo’s calculation, the present newbuilding orders have nearly met the shipping requirements of LNG volumes in 2020.

The number of uncontracted LNG carriers is set to climb, with the bulk of new deliveries scheduled from the second quarter of 2020 onwards yet to be committed to any time charters.